Wednesday, June 20, 2012

G20 to endorse growth plan and urge more financial integration in Europe - The Guardian

Leaders of the G20 economies are preparing to endorse a communique pledging further action on growth, increased resources for the International Monetary Fund and fresh commitments by the European Union to do more to integrate to solve its problems.

The G20 leaders representing 80% of the world economy are meeting in the luxury resort of Los Cabos, Mexico, against a backdrop of incessant economic storms, mainly coming from the eurozone.

Plans for an after-dinner meeting between the US president, Barack Obama, and the leading four eurozone countries attending the G20 were scrapped officially because the issue of the eurozone had been discussed enough.

There may also have been fears that tensions were starting to escalate between eurozone leaders, notably the two EU figureheads, José Manuel Barroso and Herman Van Rompuy, and other G20 countries about the slowness with which the EU was addressing its problems.

In a sign of the tensions, the Italian prime minister, Mario Monti, said no one thought the EU was "the only source of the problem". The crisis "had its origins in imbalances in other countries, including the US", he said.

Among the commitments in a draft G20 communique, which emerged on Tuesday, was a pledge to consider concrete steps towards a "more integrated financial architecture" in Europe that would include common banking supervision and firm guarantees to repay bank depositors.

The G20 communique states that euro-area members of the G20 "will take all necessary policy measures to safeguard the integrity and stability of the area, improve financial markets and break the feedback loop between sovereigns and banks".

The US, the IMF and European commission have been urging EU member states to press ahead with a banking union.

The term banking union does not appear in the text, but the wording suggests Germany may be willing to shift a little in further talks due to be held between EU leaders both in Rome on Friday and then at a full gathering of EU heads of state in Brussels next week.

In the most substantive development, the emerging countries agreed to increase funding for the IMF in a move that will see changes in the composition in the board of the IMF in return.

China, Brazil, Mexico, India and Russia all announced contributions to the IMF to bolster a "second line of defence". China will contribute $43bn (£27.4bn), the official Xinhua news agency reported. The others' share was $10bn each.

In total, the IMF's crisis intervention fund has been increased to $456bn.

Britain is not making any further contributions after already increasing its funding in the spring.

There were fears though that the resources would still not be enough to deal with the crisis.

"There is concern that the firewall available may not be adequate to deal with contagion," the Indian prime minister, Manmohan Singh, said at the summit. "The resources currently expected to be mobilised by Europe and the IMF are less than was estimated a year ago, and the crisis is actually more serious."

He added: "Financial markets normally favour austerity, but even they are beginning to recognise that austerity with no growth will not produce a return to a sustainable debt position."

In a message to Germany, he added: "Austerity in the debt-ridden members of the eurozone can work only if surplus members are willing to expand to offset contraction elsewhere in the currency area."

Conflicting messages were coming from Germany as to whether it was willing to delay Greece's current bailout plan.

The German chancellor, Angela Merkel, took a tough line, saying there could be no backsliding in the previously negotiated timetable, but other German leaders sounded a more flexible note.

Greece must achieve a budget surplus, excluding debt-service costs, of around 4.5% of gross domestic product from 2014 onwards, compared with a deficit of 5% in 2011. Athens is expected to ask to be given until 2016 to achieve the target. A slower timetable would add to borrowing needs in the meantime.

Obama met Merkel on the fringes of the summit to press her to do more. With the US election only five months away, he is desperate to see the gloom lift from world markets.

"The president was encouraged by what he heard regarding ongoing discussions in Europe about the paths they are pursuing to address the crisis," the White House spokesman Jay Carney said.

David Cameron, the British prime minister, is due to lead a G20 discussion on trade on Tuesday, warning of the dangers of protectionism, and arguing that ending trade barriers may be one of the best ways to boost growth at a time when governments cannot afford to boost spending.

The Russian president, Vladimir Putin, showed a determination to go in the opposite direction, saying: "It is time to stop pretending and come to an honest agreement on the acceptable level of protectionist measures that governments can take to protect jobs in times of global crisis," he said.

"This is particularly important for Russia as our country will join the WTO this year and we intend to take an active part in the discussions on the future rules for global trade."

NEW YORK, June 19 (Reuters) - World stocks rose more than 1 percent and the euro gained on Tuesday amid optimism the world's major central banks will provide more economic stimulus as the euro zone crisis worsens.

The U.S. Federal Reserve on Tuesday begins a two-day policy-setting meeting with investors focused on whether it will unveil any more stimulus to support the lackluster recovery.

Analysts expect the Fed to extend its long-term bond-buying through "Operation Twist" by a few months from the current deadline of June. Expectations of further stimulus from the Fed pressured the U.S. dollar across the board.

Investors have been worried about the impact of the euro zone crisis on the global economy, particularly as the U.S. economy appears to be losing momentum.

U.S. stocks rose more than 1 percent, while world stocks, as measured by the MSCI's all-country world equity index climbed 1.2 percent.

The euro gained 0.5 percent on the day at $1.2640 after hitting session highs of $1.2647.

"People are anticipating some type of response from the Fed tomorrow and are buying or covering shorts in anticipation of that," said Paul Zemsky, head of asset allocation at ING Investment Management in New York.

A surprise fall in British inflation strengthened the chance of steps from the Bank of England to support the UK economy as it feels the heat of the euro zone's problems.

Growth-related stocks led Wall Street's rally, with the S&P materials sector up 1.7 percent and the financial sector up 1.5 percent. U.S. Steel Corp jumped 5.4 percent to $19.41 and Bank of America added 4.8 percent to $8.13.

The Dow Jones industrial average was up 120.18 points, or 0.94 percent, at 12,862.00. The Standard & Poor's 500 Index was up 13.99 points, or 1.04 percent, at 1,358.77. The Nasdaq Composite Index was up 34.32 points, or 1.19 percent, at 2,929.65.

At the same time, concern mounted over a sharp rise in Spain's short-term borrowing costs, a big fall in German investor confidence and Greece's commitment to its bailout plan.

Spain came closer to becoming the largest euro zone country yet to be shut out of credit markets when it had to pay a euro era record price to sell short-term debt.

The euro zone's fourth largest economy, Spain had to pay 5.07 percent to sell 12-month Treasury bills and 5.11 percent to sell 18-month paper - an increase of about 200 basis points on the last auction for the same maturities a month ago. Yields on longer-term bonds are over 7 percent.

On Monday, initial enthusiasm over a weekend victory for pro-bailout parties in Greek elections gave way to worry about the nagging debt crisis still facing the euro zone.

In the oil market, Brent crude rebounded from near a 17-month low.

Brent crude futures were up 48 cents at $96.53 a barrel, while U.S. crude was up 76 cents at $84.03.

U.S. Treasury prices fell as some investors closed out profitable positions before the start of the Fed meeting.

U.S. benchmark 10-year notes were last down 12/32 in price to yield 1.61 percent, up from 1.57 percent late on Monday.

Gold prices eased in choppy trading. (Reporting by Caroline Valetkevitch, additional reporting by Richard Hubbard in London and Gertrude Chavez-Dreyfuss in New York; Editing by Theodore d'Afflisio)

Asian stocks rose to a one-month high and the won strengthened for a sixth day after data showed Japanese imports soared last month and before the Federal Reserve announces whether it will take new steps to boost the economy. The euro and oil declined.

Japan’s need for energy imports climbed in May after the world’s third-biggest economy shut nuclear plants following last year’s record earthquake and meltdowns at a facility in Fukushima. The U.S. central bank is expected to announce added stimulus measures as soon as this week’s meeting, according to 12 of the 21 primary dealers who trade with the Fed. The euro’s weakness comes before Spanish bond auctions tomorrow, which may cast doubt over the country’s funding capabilities.

“This is one of those big, long-term shifts” in Japan, said Robert Sinche, global head of currency strategy at Royal Bank of Scotland Plc. “It was coming anyway because of the aging population and the outsourcing of production, but it’s really been accelerated by their nuclear accident and the need to now import fossil fuels.”

More than two stocks rose for every one that fell on the MSCI’s Asian index, which is set to close at the highest level since May 15. South Korea’s Kospi index rose 0.3 percent.

Trade Deficit

Japan’s trade deficit was 907.3 billion yen ($11.5 billion) in May, the finance ministry said today. The median economists estimate in a Bloomberg News survey was for a 544.4 billion yen shortfall. Exports rose 10 percent from a year earlier, while imports climbed 9.3 percent, both wider than economists had estimated.

The MSCI Asia Pacific Index lost 10 percent through yesterday from this year’s highest level in February, leaving the gauge trading at 1.1 times book value, compared with 2.1 times for the S&P 500 and 1.4 times for the Stoxx 600, according to data compiled by Bloomberg. A number below one means companies can be bought for less than value of their assets.

VIX Decline

The largest drop in the Chicago Board Options Exchange Volatility Index since August brought the gauge to its cheapest level of the year, a sign of increasing confidence among traders that the Fed will take action again to spur growth.

The central bank, which began a two-day meeting yesterday, will extend its so-called Operation Twist program, according to JPMorgan Chase & Co. and Jefferies & Co. It involves selling short-term debt and buying longer-term bonds. A more aggressive response could be warranted if the Fed sees high costs in an economic slowdown.

“I don’t think there will be another round of quantitative easing, but I think they’ll extend Operation Twist,” said Yoshihisa Okamoto, who helps oversee the equivalent of $34 billion at Mizuho Asset Management Co. “China has shifted toward an easing posture except in the real estate sector.”

China’s fiscal policy should be “really proactive” and macroeconomic policies readjusted in the following months to sustain faster growth, the China Daily cited a proposal from the Standing Committee of the Chinese People’s Political Consultative Conference National Committee as saying.

Spain Bonds

Spain is due to sell tomorrow debt maturing in 2014, 2015 and 2017. While the nation’s 10-year yields eased yesterday, they remain above the 7 percent level that pushed Greece, Ireland and Portugal to seek rescue packages.

The so-called kiwi declined after a report today by Statistics New Zealand showed the nation’s current-account shortfall in the three months through March widened to 4.8 percent of gross domestic product, up from a revised 4.2 percent in the previous quarter.

The cost of insuring Asia-Pacific corporate and sovereign bonds from non-payment decreased, according to traders of credit-default swaps.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan dropped 4 basis points to 176 basis points as of 8:24 a.m. in Hong Kong, according to Credit Agricole SA. The gauge is set for its lowest close since May 8, according to data provider CMA.

Corn in Chicago fell 0.4 percent to $5.61 a bushel after jumping 11 percent in the previous two days on concern that hot, dry weather will curb yields in U.S. growing areas. Gold for immediate delivery rose 0.1 percent to $1,620.38 an ounce.

Asia Stocks Rise, Dollar Weakens Before Fed Decision; Corn Falls

Corn declined to $5.60 a bushel after rising for two days on concern that hot, dry weather will curb yields in U.S. growing areas. Gold for immediate delivery rose 0.1 percent to $1,620.25 an ounce.

Corn declined to $5.60 a bushel after rising for two days on concern that hot, dry weather will curb yields in U.S. growing areas. Gold for immediate delivery rose 0.1 percent to $1,620.25 an ounce. Photographer: Daniel Acker/Bloomberg

NEW YORK, June 19 (Reuters) - U.S. stocks rose on Tuesday on hopes that the Federal Reserve's policymakers will agree on extending stimulus measures as the economy struggles to recover.

A sharp decline in German business sentiment, alongside stubbornly high Spanish bond yields, raised expectations for market-friendly stimulus from European policymakers as well.

"We went to the highs of the day on that, and we have the Fed tomorrow. This is a bailout, central bank largesse bounce, and we'll see what follow-through (occurs) after the Fed tomorrow and whatever becomes of the ESM," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.

British media reports earlier had said German Chancellor Angela Merkel was poised to use Europe's dual bailout funds, known as the European Financial Stability Facility or the EFSF and the European Stability Mechinism or the ESM, to buy up the debt of countries like Italy and Spain and had discussed the plans at the summit. But a German government official told Reuters there was no discussion at a G20 summit in Mexico this week about using Europe's rescue funds to buy up the bonds of stricken members of the euro zone.

The Dow Jones industrial average was up 112.20 points, or 0.87 percent, at 12,854.02. The Standard & Poor's 500 Index was up 14.27 points, or 1.06 percent, at 1,359.05. The Nasdaq Composite Index was up 35.10 points, or 1.21 percent, at 2,930.43.

The S&P 500 has gained more than 7 percent from a five-month low hit earlier in June, and is on track to close above its 50-day moving average for the first time in seven weeks. But the sharp gains also leave the market vulnerable if the outcome of Wednesday's Fed meeting doesn't meet market expectations.

Growth-related stocks led the rally, with the S&P materials sector index up 2 percent and the financial sector index up 1.7 percent. U.S. Steel Corp jumped 7.6 percent to $19.80 and Bank of America added 4.6 percent to $8.12.

On Tuesday, the Federal Open Market Committee began the first day of a two-day meeting on interest-rate policy. The meeting got under way with expectations increasing that the U.S. central bank may extend its "Operation Twist" program, its effort to drive down long-term borrowing costs.

"People are anticipating some type of response from the Fed tomorrow and are buying or covering shorts in anticipation of that," said Paul Zemsky, head of asset allocation at ING Investment Management in New York. "There's a risk the market gets disappointed."

Spain's government bond yields eased slightly after it raised 3 billion euros at a short-term debt sale, with the higher yields enticing investors. However, with its 10-year bond yield above 7 percent, investors worried over how long the euro zone's fourth-largest economy can survive without foreign help.

In Greece, parties promised to form a coalition government soon and seek concessions from the country's EU and IMF lenders on an austerity program that is both keeping the country away from bankruptcy and mired in a very long recession.

Oracle Corp rose 3.3 percent to $28.01 a day after it reported stronger-than-expected quarterly profit, releasing the results three days ahead of schedule after news of the pending departure of a senior sales executive fueled concerns that business was stagnating.

Walgreen Co tumbled 5.6 percent to $30.17 after the pharmacy chain reported quarterly earnings and said it would buy a 45 percent stake in Alliance Boots for $6.7 billion in a cash-and-stock deal.

FedEx Corp rose 3 percent to $91.17 after the package delivery company reported fourth-quarter earnings and provided an outlook for the first quarter and 2013.

Shares of J.C. Penney dropped 8.3 percent to $22.30 a day after its president abruptly left the department store operator following a botched advertising campaign.

Economic data showed U.S. housing starts fell in May from a 3-1/2 year high, but permits to build new homes rose sharply, suggesting the housing recovery remains on track. (Reporting By Angela Moon; Additional reporting by Edward Krudy; Editing by Jan Paschal)

Campaigns that were just getting excited at the prospect of vacuuming up cash through text messaging, which the Federal Elections Commission green-lighted on June 11, may have yet another way to collect donations with a couple taps of the keyboard. Up to 140 taps, that is. Chirpify, a social-commerce startup based in Portland, Ore., has rolled out a site called Tweetlection at which donors can send money to Barack Obama and Mitt Romney via Twitter.

The process seems simple. All you need do is create an account with Chirpify, link it to your PayPal (EBAY) and Twitter accounts, and you could donate up to $200 instantly, just by tweeting “Donate $200 to @MittRomney for POTUS.” You log into Chirpify only once for the account setup, and then use Twitter, TweetDeck, or any other tweeting app as you normally would. ”There’s no shopping cart or checkout process,” says Chris Teso, Chirpify’s chief executive officer. “We’re calling it conversational commerce.”

The startup processes donations through PayPal. For the presidential candidates to collect the money, though, there’s a catch: Teso says they’ll have to create their own, free Chirpify accounts to cash in. If they don’t, your credit card won’t be charged. (Neither campaign has responded to a request as to whether they’ll participate.)

Teso says neither Romney nor Obama has signed on to a bigger deal with Chirpify that would let their campaigns collect more money in exchange for Chirpify’s 4 percent fee per contribution. That’s obviously the company’s hope. At least two dozen Republican senators and members of Congress will announce in the coming weeks that they’ll use Chirpify to solicit donations by tweet, Teso says. (He won’t name them.) Under those deals, campaigns can collect as much money as they want per tweet and Chirpify will supply them with information required by the FEC (i.e., donors’ full names, addresses, and occupations). The service could end up being a lot less costly than fundraising via text message, which the mobile payment aggregator known as m-Cube plans to roll out this summer at fees of up to 50 percent per donation.

Chirpify went live four months ago and is primarily used by individuals paying off IOUs. (As in: You didn’t have enough cash for your beer tab last night and need to pay back a friend today.) Teso says the company is also processing donations for the Make-A-Wish Foundation and running promotions for companies including Nestle (NESN:VX) , Power Bar, Pawngo, Sir Richard’s Condom Co., and Hewlett-Packard (HPQ). Those brands can advertise products to their Twitter followers, who can then place an order for a product by tweeting the word “buy;” Chirpify then coordinates with PayPal and the vending company to get the product paid for and shipped out.

Teso says the startup has tens of thousands of members and that “over 50 percent … have transacted in one form or another. That could be purchasing, donating, or paying you for dinner last night.” That’s nothing compared with Barack Obama’s 16.7 million followers, or even Romney’s 563,000. So far, though, their Twitter brigades aren’t exactly flooding Tweetlection. The site rolled out Tuesday; by noon Romney had $150 in pledges—and Obama just $132.

World stocks were mixed and the euro struggled higher versus the dollar despite growing strains on Spain on top of worries for Greece's eurozone future.

European equities rose in morning deals after Asian indices mostly closed lower as the leaders of the world's major economies embarked on the final day of the G20 summit determined to kickstart growth and the eurozone crisis.

Analysts were still betting on Greece exiting the European single currency despite weekend elections which saw Greece's two main pro-austerity parties win enough votes to form a government.

In a further blow to the eurozone, a survey revealed that German investor confidence plummeted in June, sustaining its steepest fall in nearly 14 years, on increased concerns over the health of Spain's banking system.

"The eurozone crisis is entering a dangerous and existential phase with the rise in Spanish bond yields pointing to the need for a (Spanish) bailout while in Greece, the political situation looks fragile and not strong enough to diminish the scenario of a Greek exit," said Neil MacKinnon, an analyst at VTB Capital financial group.

In late morning trade, London's FTSE 100 (Euronext: VFTSE.NX - news) index of leading companies climbed 0.83 percent to 5,536.64 points, after official data revealed a drop in British annual inflation.

A financial source on Tuesday said that a detailed audit of Spain's stricken banks, which is to follow a first examination due by Thursday, had been delayed to September from late July.

It is the second of two audits ordered for the banks, many of them struggling with balance sheets heavily exposed to a property bubble that collapsed in 2008.

Spain's government won agreement on June 9 for its eurozone partners to extend a rescue loan of up to 100 billion euros to salvage the crisis-hit banks.

In foreign exchange deals meanwhile, the euro edged up to $1.2588 from $1.2571 late on Monday in New York (Frankfurt: A0DKRK - news) . The single currency had surged above $1.27 at the start of the week.

"The initial relief rally in the euro... which greeted the more favourable Greek election outcome is already losing momentum," said Lee Hardman, currency analyst at The Bank of Tokyo-Mitsubishi UFJ in London.

"It is clear that the market is becoming increasingly dissatisfied by developments within the eurozone which merely buy time rather than attempting to solve the underlying problems."

Sunday's elections put Greece's conservative New Democracy party in the lead, with enough seats to form a ruling coalition committed to austerity measures set out in the nation's 130-billion-euro ($165 billion) EU-IMF (Berlin: MXG1.BE - news) bailout.

Monday's euro rally faded also as traders' attention moved to deepening troubles in Spain, where the yields on benchmark 10-year bonds rocketed to a euro-era record above 7.2 percent.

Anything over 7.0 percent is considered unsustainable and is the point above which Ireland (Xetra: A0Q8L3 - news) , Portugal and Greece were forced into asking for a rescue package.

Madrid's woes come as it struggles to deal with a banking crisis as well as a miserable financial situation with soaring unemployment and a huge fiscal deficit.

Adding to the gloom, a report from Spain's central bank said bad debts in the country hit their highest level for 18 years in April, sparking concerns that the bailout for its banks might not be enough.

"Spain's funding issues have taken the limelight yet again. Not to see if they will need assistance but now by how much they will need in assistance," said Andrew Taylor, a market strategist at GFT trading group in Sydney.

"The figures of 100 billion euros seem to be well below audited estimates of 300 billion plus. That is a major mismatch in expectations come bailout agreement time," he said in a note to clients.